New Zealand inflation seen falling back into RBNZ’s target band

NEW Zealand inflation probably fell back into the central bank’s target band for the first time in more than three years in the third quarter, paving the way for another big cut in interest rates.

The Consumer Price Index (CPI) rose 2.2 per cent from a year earlier, down from the 3.3 per cent annual increase in the second quarter, according to the median estimate in a Bloomberg survey of 16 economists. Inflation, which peaked at 7.3 per cent in 2022, was last inside the 1 to 3 per cent range targeted by the Reserve Bank of New Zealand (RBNZ) at the start of 2021.

Statistics New Zealand will release the data at 10.45 am on Wednesday (Oct 16) in Wellington.

The RBNZ last week stepped up the pace of rate cuts, lowering the Official Cash Rate by half a percentage point to 4.75 per cent after an initial quarter-point reduction in August. With inflation slowing markedly and the economy likely back in recession, policymakers are expected to deliver another half-point cut at their final meeting of the year in November.

“We expect annual CPI inflation to continue to cool, potentially falling below 2 per cent by early 2025,” said Mark Smith, senior economist at ASB Bank in Auckland. There’s a risk “that the RBNZ proves to be too slow in monetary policy easing”, he said.

The RBNZ aims to keep inflation around the 2 per cent midpoint of its target band. In its last set of forecasts in August, it predicted inflation would slow to 2.3 per cent in the third quarter.

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New Zealand budget deficit widens as government expenses jump

New Zealand steps up pace of rate cuts as economy weakens

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Much of the decline in the annual rate has been driven by imported or so-called tradables prices, which are expected to have declined for a third straight quarter. Non-tradables prices, a gauge of domestically generated inflation, are proving more stubborn.

Annual non-tradables inflation was 5.4 per cent in the second quarter and economists do not see it dropping below 5 per cent in the third.

“Non-tradables inflation is still way too high,” said Miles Workman, senior economist at ANZ Bank in Wellington. “Domestic disinflation does appear poised to continue, but there’s still a way to go.” BLOOMBERG